Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.
You can already hear the cautionary voices:
“Yes, of course, Prime Minister. We do need to get on top of spending. But there’s an election to win first. Let’s not rush into cuts when the economic benefits won’t be felt until long after polling day. Let’s take our time, win a majority, and then we can make some of the reforms that ought have happened at the beginning of this Parliament.”
Those voices will be persuasive, partly because it is always easy to postpone tough decisions, and partly because they will have a point. The electorate has been softened and seduced by spending. For two years, voters watched as previously unimaginable sums were borrowed – first in response to the pandemic, then in response to the continuing economic crisis.
Understandably, people recalibrated their sense of what governments could afford.
At the same time, human beings are irrationally loss averse. Removing a grant, however temporary it was understood to be when it was introduced, is like pulling a tooth. It doesn’t matter if the economy grows as a result, or if there are compensating tax cuts. It is human nature to pocket these gains while continuing to resent the lost handout.
Plus, the pandemic altered people’s psychology. We are a more authoritarian electorate than we were in 2019, more demanding of the smack of firm government, greedier for grants. Extra cash is seen as the answer to every problem. When broadcasters ask ministers “Are you doing enough?” they invariably mean “Are you spending enough?”
Habituated to government intervention, we now demand it across the board. According to a Survation poll earlier this month, 67 per cent of us want nationalised railways, 68 per cent a nationalised post office and 69 per cent nationalised water companies. On Monday, it emerged that half of Conservative voters want the state to seize energy companies. Other polls show that more people want to raise than to cut taxes.
Perhaps voters have somehow convinced themselves that nationalisation leads to lower prices. Perhaps they believe that more taxes mean better public services – though, with taxes already at a 70-year high, it is hard to spot any connection. Or perhaps they are simply rationalising the statist and servile mood that seized them during the lockdowns.
In any event, the sophists and strategists will dangle these polls before the new prime minister with grim expressions. They will point out that Margaret Thatcher knew how to time her battles, buying off coalminers’ unions in 1981, and confronting them only in 1984, when reserves of coal were high and she had recently won an election.
“Act too peremptorily”, they will warn the new Tory leader, “and you risk going down in history as one of our shortest-serving premiers”.
And they will, as I say, have a point. Recent Conservative premiers have wrongly made all manner of things the business of government.
When Theresa May introduced the price cap, she ensured that the price of energy would no longer be seen as a function of the market, like the price of a cappuccino or a Netflix subscription, but would be laid at the door of the politicians. When Boris Johnson promised to put his arms around every family, he ensured that any slide in living standards would be blamed, not on the international situation, or on people’s own mistakes, but on the Government.
For all these reasons, engaging in the sorts of reforms that Liz Truss knows to be necessary – cutting taxes, reducing spending, abolishing regulations, building houses, eliminating tariffs, breaking cartels – will be high-risk. There is a danger that the electorate will prefer sweet illusions to bitter truths, and will vote for handouts, however unaffordable.
Yet the danger of leaving things unreformed is far greater. Not just in the sense that the country is perilously close to a sterling crisis and full economic collapse, but in the immediate sense that failing to begin the economic repair-work will ensure an even worse defeat at the polls.
Look, I hate to be blunt, but people don’t generally vote for the Tories out of fondness. Like almost all right-of-centre parties, the Conservatives win when they are thought to be better at economic management.
Lefties might be seen as caring, but they are also seen as inept. Conservatives, by and large, are thought to be hard-headed, even if hard-faced; good in a crisis; people you send for when a job needs doing.
The current economic slide is bad news for incumbent parties all over the world, but especially bad news for rightist parties. Conservative governments that go into campaigns with taxes and prices rising are bound to struggle. Indeed, there is generally only one way they can win. They have to show that they have gripped the problem.
Thatcher won her greatest victory in 1983, at a time when unemployment was above three million and rising. This was not, psephologists agree, because of the Labour-SDP split or because of the Falklands bounce.
It was partly because of the unelectability of poor Michael Foot. But it was mainly because voters could see that the Conservatives had a plan to cut inflation, reduce the size of government and stimulate growth and that, although the full benefits of it had yet to be felt, it was already being implemented.
Making cuts works electorally if people believe they are necessary – if, in other words, they can see that the Government is applying the same principles of economy that they have to apply in their household budgets.
In order to be credible, cuts have to be politically balanced. The greatest savings will, by definition, be in the areas that have received the largest recent increases, especially healthcare and social security. But it will be politically difficult to find those savings unless they are balanced by savings in things that Tories care about, such as royal palaces, aircraft carriers, and police recruits.
I am not arguing for recklessness. A party that went into the next election promising to return the NHS budget to what it was in 2019 and to raise the retirement age in line with longevity would struggle to win, however much voters believed that there was a crisis.
But a party that had made no economies at all would be pulverised, because it would confirm the view that there was plenty of cash lying about, and that only some kind of bizarre Tory meanness prevented it being spent.
None of this will be easy. Since the lockdown was decreed, all our options have been sub-optimal. Perhaps voters have become such subsidy-junkies that there is no way for the Tories to win at all. Perhaps the currency crisis will hit a baffled-looking Keir Starmer, condemning Labour to a single term in office.
But let’s at least try to do the right thing. If we can’t even get spending back to the sorts of levels we had under Gordon Brown, what is the point of our party?